AP/ADMS4504A
Assignment #2
Fall 2009
Instructions:
(1)
This assignment is to be done individually.
You must sign and submit
the standard cover page supplied as the last page of this
assignment
.
(2)
Before you start, please read the note “
Writing Style Required for
AP/ADMS4504 Assignments
” posted in the “Assignments” folder on the
course web site. Please stick to the writing guidelines suggested in the
note.
(3)
This assignment is due at the
start
of class
, on
December 3, 2009
.
(4)
This assignment is to be either handwritten or printed out.
Work that is too
difficult to read due to messiness and poor handwriting will receive zero
credit.
You must show your full work to receive full credit
.
(5)
This assignment carries a total mark of 100 points.
(6)
Late assignments will not be accepted whether for technical or any other
reason.
(7)
Decimal places: please keep at least 4 in your calculations and 2 in your
final answers.
Question 1
(Yield volatility and binomial model)
(22 marks)
This question has the following two independent parts, (a) and (b).
(a) Use the daily yields in the table on next page to compute a daily standard
deviation of yields. Next annualize the daily standard deviation just calculated
first using 365 calendar days, then using 250 trading days in a year. Finally,
construct a 10-day moving average equal weight volatility forecast for each day
in the period from Day 15 to Day 30, assuming that the expected value of the
daily change in yield is zero. Please note:
for this question 1) if you use Excel
please attach your Excel worksheet to your assignment and 2) keep at least 6
decimal places in both your calculations and your final answers
. Please show
your calculations.
(12 marks)

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